Bank of Italy Highlights Partial Defence Spending in Government’s Financial Plan

Rome: The Bank of Italy said Tuesday that the government’s Public Finance Planning Document (DPFP) only partially outlines how Italy will meet the higher defence spending it is committing to in the coming years. It added that the government may have to activate the EU’s defence-spending escape clause in order to avoid a reopening of the excessive-deficit procedure that Italy is coming out of.

According to Ansa News Agency, Andrea Brandolini, the head of the Bank of Italy’s Economics and Statistics Department, addressed a parliamentary hearing on the economic blueprint. He noted that “the framework outlined in the DPFP does not seem to include, except in part, higher burdens for defence capabilities.” Brandolini emphasized that the government’s document anticipates a gradual increase in defence spending over the next three years, aiming for an additional 0.5 percentage point of GDP by 2028, which is deemed realistic based on NATO commitments.

Brandolini warned that without additional budgetary corrections, t
he projected increase in defence spending would lead to a significantly stronger net spending dynamic than currently planned. This scenario arises as Italy emerges from an excessive deficit procedure, potentially necessitating the activation of the EU’s escape clause to avoid an immediate re-entry into deficit.

Further, Brandolini suggested that the 2026 budget should prioritize reallocating resources among various budget items to enhance productivity and growth. This could involve boosting investments in sectors like research and education while streamlining tax expenditures, eliminating tax system elements that hinder business growth, and addressing the erosion of the personal income tax base.